Trusts

• Topic 01

  Introduction to Trusts

  40 questions
• Topic 02

  Creation of Express Trusts

  49 questions
• Topic 03

  Beneficial Entitlement

  51 questions
• Topic 04

  Charitable Trusts

  25 questions
• Topic 05

  Non-Charitable Purpose Trusts

  20 questions
• Topic 06

  Implied Trusts and Trusts of the Family Home

  72 questions
• Topic 07

  Trustees: Appointment, Duties, Powers, and Liabilities

  49 questions
• Topic 08

  The Fiduciary Relationship

  43 questions
• Topic 09

  Proprietary Claims and Tracing

  31 questions
• Topic 10

  Equitable Remedies

  26 questions
• Topic 11

  Remedies Against Third Parties

  26 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. In Re Oatway [1903], the trustee withdrew money from a mixed account and used it to buy shares, then dissipated the remaining balance. Why was the beneficiary permitted to trace into the shares rather than being limited to the (dissipated) account balance?

   • A
     Because the shares were purchased before the balance was dissipated, so the chronological order determined the rule
   • B
     Because applying Re Hallett's presumption (that the trustee spent own money first) would have left the beneficiary with nothing, so equity allowed the beneficiary to trace into the more valuable asset
     Correct answer
   • C
     Because Re Hallett's Estate only applies to withdrawals that are dissipated, not to withdrawals used to purchase assets
   • D
     Because the trustee expressly stated the shares were bought with trust money
   Explanation

   The rationale for Re Oatway is that the Re Hallett's presumption (trustee spends own money first) is designed to protect the beneficiary. If the trustee withdraws from a mixed account to buy an asset and then dissipates the balance, applying Re Hallett's would mean the withdrawal was the trustee's own money, leaving the beneficiary to claim from the now-empty account. This would disadvantage the beneficiary, so equity permits the beneficiary to trace into the purchased asset instead.

2. Under the framework established in Barnes v Addy (1874), there are two main heads of liability for strangers to a trust. Which of the following correctly identifies these two heads?

   • A
     Recipient liability (knowing receipt) and accessory liability (dishonest assistance)
     Correct answer
   • B
     Proprietary liability and personal liability
   • C
     Negligent receipt and negligent assistance
   • D
     Breach of trust liability and breach of fiduciary duty liability
   Explanation

   In Barnes v Addy (1874), Lord Selborne LC identified two heads of stranger liability: (1) Recipient liability (knowing receipt) -- where a third party receives trust property transferred in breach of trust; and (2) Accessory liability (dishonest assistance) -- where a third party assists the trustee in committing a breach of trust. These are the two principal ways in which a stranger to the trust can be held personally liable.

3. In Keech v Sandford (1726), a trustee held a lease on trust for a minor. The landlord refused to renew it for the minor but agreed to renew it for the trustee personally. The trustee took the renewal in his own name. Which of the following best describes the court's decision?

   • A
     The trustee was entitled to keep the lease because he acted honestly and in good faith
   • B
     The trustee held the renewed lease on constructive trust for the beneficiary, because a trustee must not profit from their position even where the beneficiary could not have obtained the benefit themselves
     Correct answer
   • C
     The trustee was entitled to keep the lease because the beneficiary could not have obtained it
   • D
     The trustee was required to surrender the lease to the landlord because the original lease had expired
   Explanation

   Keech v Sandford (1726) is the foundational case on the no-profit rule. The court held that the trustee must hold the renewed lease on constructive trust for the beneficiary, even though the beneficiary (a minor) could not have obtained the renewal. The rule is strict: 'the trustee is the only person of all mankind who might not have the lease.' The trustee's honesty and the beneficiary's inability to benefit are irrelevant.